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The American Lawyer: There's No Growth Like Associate Growth

Andrew Maloney, Reporter | June 20, 2024 at 12:00 PM

Year-over-year associate population growth at the largest law firms in the U.S. hit 2.7%—very similar to the growth rates in the two years immediately preceding the pandemic.

A return to profit growth and a broad “acceptance” of office work norms have made the legal industry look and feel a little more normal in 2024, relative to the rollercoaster ride of the last four years. And, according to new data, associate hiring may be another leg on that stool.

That’s because the growth in the number of associates at the National Law Journal’s 500 largest law firms in the U.S. settled at 2.7% between 2023 and 2024, according to data compiled by ALM—a number that is very similar to the growth rates in the two years immediately preceding the pandemic.

The total number of associates in the NLJ 500 now numbers approximately 84,651, more than 10,000 additional associates since 2018. The 2.7% year-over-year increase is roughly the same growth rate observed between 2018 and 2019, and 2019 and 2020 (2.9% growth for each). Once COVID-19 hit, there was a moderate decrease (-1.5%) between 2020 and 2021, then a similar increase between 2021 and 2022 (1.6%). Between 2022 and 2023, the total number of associates jumped notably (5.5%), before settling down to 2.7%.

he most recent data on first-year associate class sizes across the NLJ 500 also shows a slight uptick. The average class size in this cohort is up about 2.1%, going from about 35.5 in 2022 to about 36.3 in 2023 (first-year associates typically begin in the fall each year).

But the picture is also more complicated than that. Some firms felt a financial pinch starting in 2022, and began to deemphasize associate leverage, said Kristin Stark, a principal at Fairfax Associates. And there’s plenty of evidence that segmentation affects this aspect of law firm management, too, with the largest firms more resistant to market forces and more willing to keep bringing on associates, while the smaller firms—with more “fragile” economics and broadly less of a draw for talent, Stark said—more susceptible to volatility.

Indeed, Stark called associate hiring across the industry “a bit of a mixed bag.”

“So, we saw this dichotomy between firms that had a strong 2022 and 2023, versus firms that were a bit weaker,” she said. “And those who saw growth continued to ramp up associate growth. With others, we saw those layoffs, and a pullback on associate hiring and trimming of ranks. So, I do think we saw a bit of a split.”

The increase in associates was more pronounced among the NLJ 1-250 versus Nos. 251-500. The increase was almost entirely due to those larger firms—which collectively saw a 2.9% increase in their associate numbers, versus a 0.4% increase for the back half of the NLJ 500—though both groups saw about the same swing last year (5.5% versus 5.4%).

‘Not a Replacement For Associate Leverage’

The associate pattern coincides with a well-documented increase in nonequity partners. These days, there’s a roughly 50/50 chance that any particular partner at one of the largest 100 firms in the world will be of the nonequity variety. Conversely, if you’re choosing a random member of the work force at an NLJ 500 firm, there’s now a roughly 45% chance it’s an associate—though the number has hovered just above 44% for at least the last six years. Again, though, if you look at the difference in proportions between the top 250 and the rest, there’s a significant difference: about 47.6% of attorneys at those larger firms are associates, versus about 29.7% at Nos. 251-500.

Stark said some firms view the nonequity tier as an associate substitute, and in some ways, it seems reasonable. They’re more experienced lawyers and often more efficient. They can work independently. They have reasonably good client communication skills, she noted. However, it’s not a long-term competitive strategy, she said. You have to pay them more, and you have to bill the client more for their work. Plus, you’re not giving an associate a chance to improve if you rely too much on the nonequity tier.

“Most firms, if they step back and evaluate it, a large nonequity tier is not a replacement for associate leverage,” Stark said. “But there are firms out there that have ended up in that position, and are trying to convince themselves that’s the right place. But there are a lot of challenges and limitations to that strategy.”

For others, the point is that leverage has been a primary focus, as profitability and “business-driven” thinking continues to take center stage in the legal profession.

Stinson managing partner Allison Murdock alluded to the focus on leverage when she said growing the firm’s associate ranks and getting those lawyers experience have been an emphasis.

The firm most recently tallied 121 associates out of 407 total attorneys (about 30%). That’s roughly the same as the previous year, but up in the long run from 2018, when it had 108 associates and 414 total attorneys (26%).

Murdock said in an interview earlier this year that, especially after the associate market got white-hot in 2021, “we have really focused on associates. Not just lateral but new associates that we train and mentor.” At a time when productivity is hitting all-time lows, and total hours billed at the firm overall decreased, associates at Stinson billed about 3,000 more hours in 2023 than 2022.

“We do focus a lot on leverage, and it comes down to being at the right level of experience that’s appropriate for the work. So that always makes sense from a matter management perspective,” Murdock also said. “We do encourage our partners to make sure associates have opportunities to get experience on their matters.”

Winston & Strawn is also thinking a lot about leverage, chairman Steve D’Amore said. The firm most recently increased its associate tally by about 30, from 432 to 461, and its most recent first-year associate classes have been between 75 and 80 strong after falling to a little more than 50 after the pandemic.

D’Amore has been adamant that associates are a critical cog in the leverage calculation, saying earlier this year that they “absolutely” have to give them work.

“I really do believe that leverage is an important element in law firms, and that, for economic reasons, and also for experience reasons, we absolutely have to give opportunities to younger lawyers to develop the skills necessary to be the leaders of the future,” he said. Winston also matched the most recent round of associate salary raises last year, and D’Amore said in a more recent interview this month that the firm isn’t planning to change its approach to recruiting associates.

“I think we’re going to be consistent with past practice on what we’ve done with associates,” he said. “We have a nice crop of summer associates in the office now. We’ll recruit in approximately the same volume going forward, so I don’t see a major shift with respect to what we’re doing with associates.”

Deal Activity

Although litigation and counter cyclical work is king right now, transactions still ultimately drive the bus for most large firms’ profitability—and for their associate hires.

“Deal activity is what dramatically and directly impacts law firms’ outlook on the industry and willingness to bring on associates, or any sort of expense,” said Michelle Fivel, a law firm recruiter and co-founder of Hatch Henderson Fivel. She added that the kind of associates firms are focused on, at least when it comes to laterals, is basically the same as it’s been for the last year-and-a-half or two years: Midlevels—the ones with a few years of experience who can hit the ground running in any given practice. She said she’s recently seen firms hire in “more niche areas lately,” like life sciences, bankruptcy, and trusts and estates.

“Certainly we’ve had some M&A and some capital markets, and labor and employment, in particular, in California,” she added. “And litigation is still busy, and so we’re seeing a lot of movement there on both coasts.”

Corporate work was up to start the year, and that included some notable large deals. But people are generally “still waiting” for a huge uptick in M&A and private equity work, Fivel said.

And when it comes to hiring, law firms tend to be reactive anyway, both she and Stark agreed. “They don’t hire associate talent on the lateral market just to have them sit around. They hire when they need them,” Fivel said.

While some firms are still making cuts based on overhiring and overpaying from late 2020 and 2021, in general “there was a big change in how recruiting was done after the Great Recession,” Fivel said. She said firms in general have gotten more strategic. “It goes beyond, ‘Holy moly the market is getting busier.’ And it’s more, ‘How busy are we?’ It’s more granular. ‘How do we utilize 100%?’”

She added: “Firms look at that a lot of times now across offices, to make sure there is a real need before they look to hire.”

Still, smaller and midsize firms are having more and more trouble competing for associate talent, even if they’re trying to be more strategic and proactive about it, said Stark, of Fairfax.

“Associates see value in having that big-name law firm on their resume, and they also see value in their geographic platform, the viability to be on diverse platform geographically,” she said. “So that segmentation, even when small and midsize firms do want to be more proactive, and they do want to grow leverage, it’s hard, and getting harder.”

Read the original article here.


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